Updated: Nov 12, 2021
The world of credit can be complicated, and many small business owners simply don’t have time to figure out all the details. So they may ignore their business credit scores, mistakenly thinking their personal credit scores are all they need to worry about.
But that’s just not true. While a startup may be evaluated for financing based on their personal credit score, once the business is up and running, lenders will place more emphasis on their business credit scores.
Creating a separate bank account for your business is an important first step to dividing your personal and business finances. Next up: Knowing key differences between your personal and business credit. Here are some common myths surrounding business credit—and what you need to know to help your business credit scores soar.
Myth #1: I Have Good Personal Credit, So I Don’t Need Business Credit
If you’re a startup with no financial track record for your business, lenders will look at your personal credit score when you need to borrow money. But as you continue to operate your business, your business credit report is what suppliers, lenders, creditors, insurance companies, and other parties will use to assess credit applications and business partnerships.
Having both strong business and personal credit scores shows responsible financial behavior and can help you grow your business. A high business credit score can lead to higher credit limits and lower interest rates when you need to borrow (the same goes for your personal credit score). To make sure you’re eligible for those, regularly monitor the information reported on your business credit report and make sure to pay all your bills on time.
Myth #2: Personal and Business Credit Are Reported to the Same Bureaus
The three national consumer credit bureaus are Experian, TransUnion, and Equifax. The three business credit bureaus are Experian, Equifax, and Dun & Bradstreet. There is no guarantee your personal and business creditors will report to the same agencies, so it’s important to monitor all of your business and personal credit reports. It can be a lot to keep track of but ensuring your reports are accurate and reflect your true credit behavior can be a huge help when you need a cash infusion to keep your business operating, purchase necessary equipment, or up your inventory.
Myth #3: I Am Building Business Credit Because I Have Supplier Relationships
Just because you have supplier relationships does not mean those suppliers report your payment activity to the business credit bureaus. Vendors and even creditors are not obligated to report to the bureaus.
If your goal is to build your business credit score (which is a good goal), you need to make sure these financial transactions are reported to the correct agencies. When you’re building business relationships that involve you making payments to another company, check to see if the company reports to the business credit bureaus.
Myth #4: I’ve Been in Business for Many Years, So I Must Have Excellent Credit
The length of time your business has been operating is just one of several factors that go into your business credit scores. Even if you make all your payments on time, that’s not enough to earn a good business credit score. Your score is based on:
The number of years you’ve been in business
The number of business credit inquiries made in the past nine months
The number of new lines of credit opened in the past six months
Collection amounts or tax liens from the past seven years
Having diverse credit accounts (not just credit cards)
Many business owners make the mistake of ignoring their business credit score until it’s too late and they are turned down when seeking a vital expansion loan or new supplier partnership. The bottom line: You need to pay as close attention to your business credit score as you do with your personal credit.
Make your business credit score a priority and help safeguard your business’s future.
Maria Valdez Haubrich is the Executive Editor of SmallBizDaily.com where she is responsible for all web content. Previously she was the Executive Editor at Entrepreneur Magazine, where she worked for more than 20 years.